Links in the Chain

Article
From: Products Finishing, Jim Destefani ,
Editor

Posted on:2/1/2008

In business relationships, Think ‘value,’ not ‘supply’

Your company—every manufacturer, regardless of size—is part of a supply chain. You order parts and supplies from vendors; you ship parts to customers. This is the way it’s been in American manufacturing, at least since Henry Ford gave up on the notion that he could bring raw iron ore into one end of his massive Detroit-area Rouge Plant and drive completed Model Ts out the other.

But, according to a study recently commissioned by the National Association of Manufacturers (NAM; Washington) and The Manufacturing Institute, traditional supply chains are morphing under the pressure of a globalizing economy, and companies sticking with the tried-and-true supply-chain rules are putting their businesses in jeopardy by not adapting.

Based on extensive interviews with company executives, survey data and a roundtable discussion with managers, the publication, titled “Forging New Partnerships: How To Thrive in Today’s Global Value Chain” is a follow-up to a previous study that looked at challenges and policy issues affecting the future success of small and medium-sized manufacturers (SMMs). That report documented internal management, external policy and market challenges facing small (<500 employees) and medium-sized (<2,000 employees) manufacturing companies. It also outlined policy recommendations to spur manufacturing competitiveness at such companies, which make up the vast majority (99%) of all manufacturers in the U.S. and account for 40% of U.S. production value.

According to the new report, the arrival of an interconnected global marketplace on Internet time means value chains are rapidly replacing supply chains. This switch requires business owners to think well beyond traditional supply-chain arrangements in terms of greater levels of collaboration with both suppliers and customers. It also requires employees with skills far superior to their predecessors and a world outlook framed by these new realities.

Owners and managers of small and medium-size manufacturing companies are often so focused on day-to-day operations they forget to look at the bigger picture and how their companies might profit from global shifts, the report says. But SMMs—like all manufacturers—must look beyond their traditional geographic and market niches and beyond the borders of traditional U.S. markets. To do that successfully requires building an organization with the capability to succeed anywhere, and this is the essence of the value-chain success strategy.

According to the report, only half of all U.S. manufacturers of any size have these value-chain strategies, and succeeding in this new world is not easy. Companies must overcome cultural and language barriers, financing challenges and regulatory, tax and compliance issues. Savings from process improvements such as those that can result from lean manufacturing become more important than ever before. So going global is not without risk, but potential benefits far outweigh the risks, and current exchange rates make U.S. products increasingly attractive abroad.

Working successfully within the value chain is critical to capitalizing on these new opportunities, and the ways manufacturers relate to each other in the chain have changed, the report says. SMMs today are part of a complex matrix of interdependent corporate relationships and the workforce that makes them succeed. Innovation and value are created at all levels of the chain and in collaboration with external partners. In this environment, SMMs are integral partners that help create the new technologies, products, services and business models that are vital for success in the U.S. and around the world.

The report gives SMMs multiple tools for success in this new environment, including best practices, a matrix that can help you figure out where your company may fit in the new value chain, suggestions on partnering for success, how to begin thinking about exporting your products and capabilities, resources for getting and keeping new skilled workers and suggestions of where to turn to crank up innovation in your company.